In this post, I point out the main differences between traditional governance and blockchain governance from a political philosophy point of view. I then propose practical solutions for SushiSwap to create the first philosophically- and pragmatically-sound DAO.
As we stand looking at the dawn of a still-untapped blockchain application, Decentralized Finance, new mechanisms need to be employed to tackle blockchain-specific tasks. For this, we need to look towards normative considerations of political philosophy, rather than try to re-create structures known from traditional finance or even traditional politics.
Systemic revolution of decentralized governance
Decentralized governance is revolutionary. It’s not revolutionary because it’s based on blockchain, it’s revolutionary because it systemically shifts the paradigm of what we think is possible within political systems. Namely, we’ve historically come to understand political systems as a two-fold process: the establishment of laws and the execution of laws. This holds true for both modern and ancient systems. Fundamental rules keeping communities and nations in existence are a persistent concept: it’s impossible to imagine a society in which each continually acts on his own accord without any mutual rules, as one’s needs will eventually clash with someone else’s. Hence, laws are necessary and some sort of entity is needed to create them. Following the classics of political philosophy, I’ll call this entity the Sovereign.
For the laws to be more than words on paper, consequent enforcement needs to take place. I call the enforcing entity the Government.
In all of today’s political systems, the Government consists of a small number of citizens. At the same time, the Sovereign’s numbers vary in as far as the practical definition of the Sovereign also naturally varies from state to state. It can be said, however, that in no existing political system does the Sovereign equal the whole population: for laws to be efficiently created, a group of elected (or not, in non-democratic systems) representatives is responsible for creating, proposing, and voting on laws.
The Government and the Sovereign on the blockchain
The revolution of decentralized governance means this: Every active participant of the system can influence the law-giving process and be a part of the Sovereign as a result. The traditional Government, on the other hand, is completely replaced by the Code. The blockchain code becomes the entity responsible for enacting decisions made by the Sovereign. This means two things:
- The will of the Sovereign will always be perfectly-enacted, as it’s the governance participants who write the laws into code, propose, and vote on them. The execution of the code is completely objective and can only be influenced through passing of new laws by the Sovereign: the law is as good as the code written.
- The Sovereign doesn’t need representatives to vote on laws proposed: any participant is able to express their opinion on any law-to-be.
Those two points offer benefits impossible in regular political systems. In an ideal world, it allows all of its participants to self-govern in an unprecedented manner.
Firstly, a regular Government will always consist of people with their personal agendas. The execution of any law will always be flawed not because the law itself is flawed, but because the executor can never perfectly interpret and enact the will of the Sovereign. In blockchain, it’s impossible by the very nature of technology, there’s no room for misinterpretations and consequently misexecutions.
Secondly, the Sovereign not needing representation in voting means that, similarly to what was said above, the personal agenda of a voting representative doesn’t play a role anymore: the laws created will always express the majority’s will.
With regards to the second point: while decentralized governance allows for all creation, proposing, and voting to be done by the Sovereign, it’s pragmatically-speaking sensible to create representatives responsible for writing and proposing laws. The reason for this is that any proposal needs to consist of executable code for the blockchain to interpret. The nature of programming in its current state requires qualified engineers to effectively translate ideas into code as potential errors can’t be easily fixed. For the same reason, it’s paramount for any proposed law (or code) to be thoroughly verified before launch.
Knowing the above points, the most crucial aspect for SushiSwap will always be the law-making process which goes from creating, proposing, and voting on a change’s inclusion in the blockchain. This process needs to be described in a constitution-like document which would ideally be voted in favour of by all owners of the $SUSHI token, i.e., members of the community.
I define a voter as someone financially invested in SushiSwap’s success, i.e., an actor staking either ETHER/SUSHI LP or xSushi for a given period of time. (to be defined)
Two main challenges can be distinguished here:
- Both blockchain technology and the DeFi landscape changes rapidly. SushiSwap should be able to implement smaller proposals without having to refer to a community vote. Ten small changes might be as important and beneficial as a single big one, but the law-making process requiring a quorum for each small change entangles the system in bureaucracy and stifles efficiency. It’s implausible to expect the community to micromanage SushiSwap by voting on each issue.
- Proposals of larger magnitude, impacting fundamental areas like inflation, should not be taken lightly, on the other hand. This is namely where the main strength of decentralized governance comes into play: community members should be able to express their opinion directly or at worst delegate their voting rights to trusted actors.
To answer the first problem, I propose delegating on-going, decision-making capabilities to select groups of community members, consisting of professionals in the relevant area.
The specific areas where team-led decision-making happens, still need to be defined. Their responsibilities and capabilities need to be, however, strictly defined to avoid the clashing of decision-making authority with other entities.
To answer the second problem, I propose establishing voting categories and voting thresholds.
Similarly to republican and democratic systems, different laws carry different weight in SushiSwap. For this reason also, it’s imperative for the greatest possible majority to vote in favour of the initial Constitution as it’s the most important document SushiSwap governance will ever have. For the same reason, it’s the only document requiring a supermajority for a change to be enforced in this draft.
Voting thresholds are therefore necessary, of which I propose two types:
- Regular majority (50%+1 vote) for a Regular Proposal
- Constitutional majority (75%) for a Constitutional Proposal
Proposals and quorum
Proposals need to always be created in the form of executable code. Proposals can be:
A Yes Or No Proposal. Example: Change trading fees’ rewards percentages to 0.2% going to liquidity providers and 0.1% going to those staking xSUSHI. (currently 0.25% and 0.05%)
A Multiple Choice Proposal. Example: Change trading fees’ rewards percentages to 0.2% going to liquidity providers and 0.1% going to those staking xSUSHI OR change rewards to 0.15% for liquidity providers and 0.15% for those staking xSUSHI.
In the Yes/No Proposal, a quorum of voters is synonymous with the voting threshold established previously, meaning 50%+ of all voters. Refraining from voting by eligible voters means a NO vote.
In the Multiple Choice Proposal, naturally a quorum needs to be achieved. The number of voters required for the highest-voted choice to be implemented is:
- 50% of eligible voters for a Regular Proposal
- 75% of eligible voters for a Constitutional Proposal
Similarly as in the Yes/No Proposal, abstaining from voting by eligible voters means a NO vote to any change happening.
After a proposal is submitted, voting takes place. Different voting categories call for adequate voting periods:
- Regular Proposal voting takes 3 days
- Constitutional Proposal voting takes 7 days